Observations on the two judicial interpretations for arbitration promulgated by the Supreme People's Court

In the meantime, the sixth case type, “other types of arbitration-related judicial review cases”, also leaves room for some newly encountered issues in arbitration practice. For example, in recent years, with the decisions in LD Packaging and other cases, the issue of arbitration conducted by foreign arbitral institutions in Mainland China has drawn great attention from all parties. The implementation of interim measures in such cases, the nature of the ruling and the basis and path for its enforcement and other issues have caused a wide range of discussions. For another example, the issue of the enforcement of interim measures made by foreign arbitration institutions or arbitral tribunals in Mainland China is also a matter of great concern in practice. In circumstances where the PRC Arbitration Law (中华人民共和国仲裁法) has not been amended, it is difficult to achieve an effective breakthrough by relying solely on the judicial interpretation of the Supreme People's Court. However, it is generally agreed in the industry that the point of “other types of arbitration-related judicial review cases” is basically the aforementioned unresolved practical issue. The Supreme People's Court reserves the foreshadowing in the Judicial Review Interpretation, so that once the legislation is adjusted in the future, the legislative intention can be quickly implemented and followed at the judicial practice level. This concept and approach are arguably very advanced and pragmatic.

II . THE EXTENDED APPLICATION OF THE REFERRAL AND REVIEW SYSTEM

The referral and review system is a judicial review system of arbitration with distinctive Chinese characteristics. Its initial historical origins can be traced back to the Supreme People's Court, Circular on Issues Relevant to the Handling of Foreign-related Arbitration and Foreign Arbitration Matters (最高人民法院关于人民法院处理与涉外仲裁及外国仲裁事项有关问题的通知) in 1995 (1995 Circular). The background of the 1995 Circular is that, after China acceded to the New York Convention, some local courts failed to correctly understand China's treaty obligations, and adopted judgments against the recognition and enforcement of foreign arbitral awards in violation of the intention of the Convention. To this end, the Supreme People's Court has created a referral and review system that requires courts at all levels to refer negative judgments against foreign-related and foreign arbitral awards to the Supreme People's Court for approval. After the establishment of this mechanism, the number of refusals to recognize, enforce and rescind awards has dropped sharply, improving the international reputation of judicial review of arbitration in China.

However, while judicial review of foreign-related and foreign arbitral awards has been steadily developing, some regrettable situations in the practice of judicial review of domestic rulings continue to arise. For example, some local courts distort the intent of the law, arbitrarily rescind and fail to enforce arbitral awards. As another example, some local courts carry out the second hearing of substantive cases in the process of judicial review, which not only severely reduces the efficiency of judicial review, but also confuses the parties in terms of the independence of the arbitration system and the function of judicial review of arbitration. Although the overall proportion of problematic cases is negligible compared to the large volume of cases, the negative impact has greatly impaired parties' confidence in the commercial arbitration system. In order to resolve this situation, the Supreme People's Court decided to introduce the referral and review system that has proven effective in judicial review of foreign-related and foreign arbitral awards to domestic arbitration cases

According to the second paragraph of Article 2 of the Referral Interpretation, if the courts draw negative results in the judicial review of domestic arbitration (i.e. find the arbitration agreement null and void or find that the arbitral award should be rescinded or not enforced), then the People's Court should refer to the Higher People's Court and wait for it to issue a review before delivering a judgment. At the same time, according to Article 3, if the domestic arbitration case is sited in the interprovincial administrative area where the parties reside, or if the arbitration ruling is rescinded or not enforced for reasons that are against the public interest, then the relevant case must be referred to the Supreme People's Court for review.

Compared with 1995 Circular, this provision on domestic cases is a more elaborately designed system, which strikes a good balance between the review needs and the case-handling load. According to information the author has learned, there are more than 10,000 judicial review cases of domestic arbitral awards in China each year. At the same time, however, the average number of cases handled per judge per year in the corresponding departments of the Supreme People's Court only amounts to several dozens. Obviously, if the 1995 Circular is followed directly, the Supreme People's Court will soon be overwhelmed by arbitration judicial review cases. However, if the level of examination of all cases is fixed in a Higher People's Court, it will still be difficult to effectively overcome local protectionism and to thoroughly prevent abuse of the public interest. For this reason, the Supreme People's Court still reserves the right of final decision on these two special types of issues.

The potential of the referral and review system for domestic cases lies in the possibility for it to generally reduce the misjudgment rates of the courts in examining domestic arbitration cases and restrain the parties' urges to arbitrarily initiate judicial review of arbitration.

III . A NUMBER OF TECHNICAL PROVISIONS CONDUCTIVE TO ARBITRATION

In addition to the outline provisions, certain technical provisions in the two judicial interpretations also reflect in their subtle details the Supreme People's Court's attitude of support for arbitration. For example, the provision of Article 6 of the Judicial Review Interpretation concerning filing of documents for the execution of foreign arbitration awards does not emphasize the need for notarized certification of arbitral awards, thus making it easier for parties to prepare relevant materials to a certain extent, and allowing the hearing of relevant cases to properly focus on the important issues that are in dispute and need to be clarified and discussed.

In the area of applicable law on the effectiveness of foreign arbitration agreements in Article 14 of the Judicial Review Interpretation, the legislative principle of in favorem validitatis has been adopted, and stipulates that when determining the applicable law of foreign arbitration agreement, if the relevant parties did not select the applicable law, and the law applicable to the locality where the arbitration institution is located and the law applicable to the place of arbitration have different approaches to recognitions of the validity of the arbitration agreement, the People's Court should apply the law that recognizes the validity of the arbitration agreement.

Another example is the provision of Article 3 of the Judicial Review Interpretation of recognition for related cases, which is also a system designed to enhance the utility of arbitral awards. According to previous legislation, an application for recognition and enforcement of foreign arbitral awards in China must be based on the assumption that the respondent or the property for enforcement is located in China. The Chinese courts will reject the application if this is not the case. However, the provisions of Article 3 have, to a certain extent, broken with this traditional approach and allowed parties to submit cases for accreditation that are not related to China according to the traditional concepts familiar to the Chinese courts. Although presently there are differing opinions on the necessity of recognizing such cases and the meaning of “related cases” in the Article, these questions confirm the open concepts in Article 3 that legislation is not concerned with the motives of the parties and allow the parties to freely dispose of their rights. Whatever the final actual effect, this idea itself will undoubtedly help the development of the arbitration system.

Due to space limitations, it is difficult for the author to comment on the new provisions in the two judicial interpretations one by one. However, judging from the points selected above, the guiding ideology of the Supreme People's Court as a whole is to establish a judicial arbitration environment with less aggressive intervention and which is more conducive to resolution of disputes, and to put this guiding principle into practice in specific provisions. The author believes that under the guidance of the two judicial interpretations, another historic opportunity for rapid development of China's commercial arbitration system will be ushered in.

Vincent Mu, Partner

Llinks Law Offices